The Bank of England has raised interest rates for the fourteenth time in a row today, pushing up mortgages for millions of homeowners.
The base rate has this afternoon gone up from 5% to 5.25% - as widely expected by analysts - taking it to a new 15-year high. The last time interest rates in the UK were at 5.25% was in April 2008 - they were cut that month to 5%.
When the base rate is higher, borrowing becomes more expensive and millions of homeowners have seen their monthly mortgage costs skyrocket off the back of consecutive rises.
The Bank has been putting up interest rates since December 2021 to try and bring down inflation, which fell to 7.9% in the 12 months to June. Although this is lower than the 8.2% than had been expected by analysts, inflation is still way above the 2% target set by the Bank - largely driven by the food prices and higher energy bills.
In its update today, the Bank said it predicts inflation will fall to just under 5% by the end of the year - if this happens, it technically means Prime Minister Rishi Sunak would have met his target of halving inflation by the end of the year.
Shop prices 'are yet to peak and will remain high' as inflation hits new heights
But the Bank warned inflation won't return to the 2% target until the second quarter of 2025. It also downgraded its growth forecast for the economy but said the UK would avoid recession.
We're wrapping up our coverage now - thank you for joining us today. A fourteenth rate rise will be worrying news for many families so if you have questions about what it means for you, email us at: [email protected]
Bank of England Governor Andrew Bailey has said now is not the "time to declare it's all over" after the Bank hiked interest rates again today.
He said: "We've had quite contrasting evidence in the last couple of months or so," he said on Thursday. The evidence has gone one way then gone a bit the other way.
"So I don't think it is time to declare it's all over and we're sort of sticking where we are for the moment, because I think that really does sit at odds with the fact that we've had some very big pieces of news and they are not going the same direction.
"So I think we have to remain evidence driven. We've continued to use language which we've used before, which is to say, if we get more evidence of more persistent inflation then we will have to react to that."
The Bank of England has warned rates could stay higher for longer. Governor Andrew Bailey told a press conference: "In order to get inflation back to target (2%) we need to keep the stance."
Deputy Governor Ben Broadbent added: "Our focus is very much on the medium term. We have to show that interest rates over that period are sufficiently restrictive.
"I don't think we're saying any more than that we didn't have in mind somehow that households in particular were underestimating the risks."
Mr Bailey told the press conference, when asked if it would follow the European Central Bank by indicating it was close to pausing rate hikes: "We have quite contrasting evidence from the past couple of months so I don't think it is time to declare it is all over and we are sticking were we are.
8 money changes coming in February including Universal Credit and passport fees
"There is no assumed path of interest rates from here."
Talk to your mortgage lender as soon as possible if you're struggling. New rules under the Mortgage Charter mean anyone worried about their repayments can contact their lender for help and guidance, without any impact on their credit file.
Lenders who have signed up have agreed to allow customers who are up-to-date with their payments to switch to interest only for six months or extend their mortgage term to reduce their monthly payments.
Borrowers will have the option to revert to their original term within six months by contacting their lender. Keep in mind if you switch to interest only, you won't be paying off the capital you owe on your mortgage and if you reduce your term, it will take longer to pay off your mortgage.
Those struggling can also be offered a range of other options like a temporary payment deferral or part interest-part repayment. Lenders will need to provide "well-timed information" to help customers plan ahead should their current rate be due to end.
Rachel Springall, finance expert at Moneyfacts.co.uk, has advised borrowers who still have a low rate fixed mortgage to overpay where they can. She added: "Interest rates on mortgages are much higher than some may realise, so borrowers will need to ensure they have surplus funds to meet higher repayments when they come off a lower rate deal."
As well as hiking its base rate to 5.25%, the Bank also:
Responding to the rate rise, Rachel Reeves MP, Labour Shadow Chancellor, said: “This latest rise in interest rates will be incredibly worrying for households across Britain already struggling to make ends meet. The Tory mortgage bombshell is hitting families hard, with a typical mortgage holder now paying an extra £220 a month when they go to re-mortgage.
“Responsibility for this crisis lies at the door of the Conservatives that crashed the economy and left working people worse off, with higher mortgages, higher food bills and higher taxes. After thirteen years of economic failure and managed decline under the Conservatives, it’s time for change.”
Chancellor Jeremy Hunt said: “If we stick to the plan, the Bank forecasts inflation will be below 3% in a year's time without the economy falling into a recession. But that doesn't mean it's easy for families facing higher mortgage bills so we will continue to do what we can to help households.”
Financial markets are now forecasting the base rate could hit 6%, then fall to 5.2% this time in 2025 and 4.5% in 2026. That said, there is a lot of uncertainty around those projections given they can change depending on economic and political events.
Defending the latest rate rise, the Bank said inflation was “skewed to the upside”, adding “persistent inflationary pressures have begun to crystallise” - but it warned, should those pressures continue, then more rate hikes “would be required” in the future.
Inflation has been largely pushed up by higher energy and food prices. The average household is expected to pay less than £2,000 for their energy when the price cap is next changed in October.
Meanwhile, food inflation is predicted to ease to 10% by the end of the year. Food inflation slowed to 17.3% in the year to June, down from 18.3% in May.
The Bank acknowledged its surge in rates - from just 0.1% in late 2021 - had put the brakes on the UK’s already go-slow economy. It said the “pass through” of “significant” past increases would “push down” growth over the next two years.
Slashing its own forecasts from May, the Bank now thinks the economy will grow by a paltry 0.5% in 2024 and only 0.25% in 2025. That would make the UK one of the slowest growing major economies in the world.
The eurozone is forecast to grow 1% next year - twice as fast as the UK - and 1.5% in 2025, six times faster. While not predicting a recession, new Bank data reveals that is still a real risk.
The Bank now expects inflation will fall to just under 5% by the end of the year but won't return to the 2% target until the second quarter of 2025. Mr Bailey said: “Inflation is falling and that’s good news.
“We know that inflation hits the least well off hardest and we need to make sure that it falls all the way back to the 2% target. That’s why we’ve raised rates to 5.25% today.”
Six of the Monetary Policy Committee’s nine members - including Bank Governor Andrew Bailey - voted to raise its base rate to 5.25%. Two wanted a hike to 5.5%, while one - Swati Dhingra - argued for rates to be frozen.
As widely expected, the Bank of England has confirmed its base rate has risen to 5.25%. This marks a 0.25 percentage point increase from its previous rate of 5%.
Laith Khalaf, head of investment analysis at AJ Bell, explained fixed mortgage rates could fall even if the base rate goes up, as these types of deals are based on market forecasts of future rate rises.
"The market is now expecting interest rates to top out at 5.75% or 6% by the end of the year, so has already pared back its bets from the height of inflationary panic when rates north of 6% were envisaged," she explained.
"The Bank is still walking a tightrope though, as it tries to tame inflation without breaking the housing market."
The base rate is currently at its highest level in 15 years, or since 2008. This graph shows how the base rate rate was at an historic low of 0.1% up until December 2021, when the Bank of England first started putting it up.
If you're wondering how this compares more historically, the interest rate hit 17% back in 1979. At the time, the Government - controlled by Margaret Thatcher - was in charge or setting the base rate.
The aggressive rate rises came after inflation reached peaks of 25% in the mid-1970s.
Research by the app TotallyMoney shows overdraft and credit card rates are much higher and savings rates lower than when the Bank of England’s base rate was last 5.25%.
Back in February 2008, you could get a best buy 6.50% on an easy-access savings account. Now the best is 4.63%. Overdraft rates have also jumped, partly due to changes to charges since then.
Santander’s authorised overdraft rate is now just under 40%. In 2008, Abbey National’s overdraft rate - Santander went on to buy the Abbey - was 10.9%.
It’s the same with credit card rates. Abbey’s purchase rate was 15.9% in 2008, whereas Santander’s is now 22.9%.
A protest by campaign group Positive Money is taking place outside the Bank of England. They’re rallying against “relentless” interest rate rises, as well as calling for a windfall tax on the banking sector.
The group are holding signs saying “pay rises, not rate rises” and “#TaxTheBank” while holding foil balloons and wearing masks of Andrew Bailey.
(Ian Vogler / Daily Mirror)
Credit card interest rates are normally variable, which means they change from time to time. If your credit card is linked to the base rate, then how much you pay back in interest can go up.
You should get 30 days’ notice if your interest rate is going up. Data from Moneyfacts shows the average credit card interest rate is 31.2% - and many cards charge far more than this.
Interest rates on most personal loans and car financing are normally fixed but do check with your lender to be sure. If you need to take out new credit, the deal you’ll get will likely be worse compared to a year ago, due to lenders putting up rates.
There is one good side to interest rates going up: better deals for savers. Savings rates have been steadily increasing over the last year - but many people are still leaving their money in poor-paying accounts.
The best easy-access rate right now is 4.63% from Shawbrook Bank - although it does come with some restrictions, such as the minimum withdrawal you can make is £500.
Fixed accounts pay more but the rate you get in interest won't go up if there are future Bank of England base rate rises. The best-paying fixed rate deal is 6.05% from Atom Bank for a one year fix.
Regular saving accounts pay even more than this - but you're often limited to how much money you can save each money. Skipton Building Society pays 7.5% fixed for one year but you can only deposit up to £250 each month.
(PA)Rising interest rates are also having a knock on impact for renters. If you're a renter, you may find your landlord decides to increase your rent if their mortgage has risen.
Last month, data from the Office for National Statistics (ONS) showed private rents rose faster in June than they have since records began in January 2016. Rents grew 5.1% across the UK.
Seperately, estate agents Savills has previously warned how more landlords are selling up, which could mean fewer homes are available and thereby demand increases. So what are your rights?
For a rolling tenancy, your landlord can't normally increase your rent more than once a year without your agreement. For a fixed-term tenancy your landlord can only increase the rent if you agree to this, or if it is written into your contract.
If you say no, they can put it up after your fixed term ends and you'll need to sign a new contract. If you think your landlord has put up your rent unfairly, you first step should be to make a formal complaint to them in writing.
Tell them what rights you have and what you think they should have done. Speak to an advisor at your nearest Citizens Advice if you're unsure.
Financial comparison website Moneyfacts has just released its latest mortgage update ahead of the Bank of England announcement.
The average two-year fixed residential mortgage rate today is 6.85%, unchanged from the previous working day. Meanwhile, the average five-year fix is 6.36%, down from an average rate of 6.37% yesterday.
There number of residential mortgage products available today has risen slightly from 5,022 to 5,028.
This all depends on what type of mortgage deal you have. Tracker mortgages “track” the base rate, so this type of deal goes up when the base rate increases.
Standard variable rate (SVR) deals are normally affected as well, although it is down to your lender to decide if they put up your rate. You'll normally be reverted to your lender's SVR once your current mortgage deal ends.
The average monthly repayments for tracker rates could increase by £23.71 in the event of a 0.25 percentage point increase in the base rate, or £47.43 if there is a 0.5 percentage point increase, according to data released by UK Finance.
Meanwhile the average SVR repayment could increase by £15.14 as following a 0.25 percentage point increase, and a further £30.28 if we see a 0.5 percentage point increase.
If you have a fixed-rate mortgage, your rate won't change while you're still in your current deal. However, millions of people who need to remortage now rates are higher - particularly those who are coming off cheaper rates - have been hit with a huge financial shock with their monthly bills rising substantially.
There are around 800,000 fixed-rate deals ending in the second half of 2023, while around 1.6 million deals are due to end in 2024, according to data from UK Finance.
Last month, the Bank of England warned nearly one million homeowners will see their fixed rate mortgages rise by around £500 per month by 2026.
The Bank has a target of 2% inflation - so at 7.9%, we’re still far off from this figure. But how exactly does this relate back to interest rates?
By raising interest rates, the cost of borrowing becomes more expensive and this means people should spend less. If people aren’t spending as much as before, then this should bring inflation down.
The Consumer Price Index (CPI) measure of inflation is used to show how prices have changed over 12 months. When inflation is higher, you're paying more for something compared to one year ago.
For example, if something cost £1 last year and the rate of inflation is 2%, it would now cost £1.02 today.
Inflation has come down but this doesn't mean prices are no longer rising. Prices are still going up, just not as sharply as before.
(PA)Good morning and welcome to our live coverage as the Bank of England prepares to announce whether interest rates will rise again.
The Monetary Policy Committee (MPC) will meet this morning to decide if the base rate should increase from its current level of 5%, with an announcement expected at 12pm.
We'll be running through what this means for you - from mortgage borrowers to renters, to people with savings and people in debt - ahead of the announcement.
If you're concerned about rising prices, or have a question about the cost of living, we want to hear from you. We try to respond to as many emails as possible.
Email us at: [email protected]
